Business Purchase Agreements

Houston Attorneys for Business Purchase Agreements

The transactional attorneys at Hendershot Cowart P.C. have valuable experience guiding business owners and investors through the purchase or sale of a business – from helping to structure and negotiate a purchase agreement with detailed, complete disclosure schedules to drafting ancillary agreements, such as confidentiality, licensing, employment, non-competition, or security agreements that keep your interests protected.

Whether your transaction involves the purchase or sale of a business’ assets or its equity, our attorneys can help you through the entire process, including structuring the transaction, negotiating important details on your behalf, advising you on the tax implications of different transaction forms, and discussing financing and payment arrangements.

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What Is a Business Purchase Agreement?

A purchase agreement will generally take one of two forms:

  1. A stock (or partnership interest or membership interest) purchase agreement, where the equity of the legal entity that operates the business is sold; or
  2. An asset purchase agreement, where the buyer acquires most (if not all) of the assets used to operate the business. Such assets include both tangible assets (e.g., equipment, machinery, computers, and furniture) and intangible assets such as contractual relationships, intellectual property, and goodwill.

A contract for the purchase and sale of a business is a legally binding agreement that outlines the terms and conditions of the purchase and sale of a business (or its assets), including:

  • The exact nature and extent of what is being sold;
  • The responsibilities of the parties before, at, and after closing;
  • How and when responsibility shifts from one party to another, and
  • What recourse either party will have against the other in the event things do not go as planned.

Think of it as a road map for the entire transaction.

The Letter of Intent (LOI) and Due Diligence

A purchase agreement is usually preceded by a letter of intent (LOI) that outlines the fundamental terms of the parties’ agreement at a high level. After execution of the LOI, both parties will conduct due diligence before finalizing the purchase agreement.

What Is Included in a Purchase Agreement?

Details typically included in a business purchase and sales agreement encompass:

  1. Assets included in the sale
  2. Purchase price and payment
  3. Closing date and deliverables
  4. Obligation for closing costs and fees
  5. Seller’s representations and warranties
  6. Buyer’s representations and warranties
  7. Assumption of liabilities
  8. Covenants
  9. Restrictive covenants
  10. Employee matters
  11. Indemnification
  12. Dispute resolution
  13. Non-disclosure, non-solicitation, or non-competition agreements

Assets Included in the Sale

This includes a detailed list of all assets that are directly (in case of an asset purchase) or indirectly (in case of an equity purchase, where the entity owns the assets) included in the sale of the business, such as equipment, inventory, real estate, customer lists, social media accounts, contracts, goodwill, ownership interests in other entities, and intangible assets, to name a few. Parties often desire to specifically exclude assets from the transaction, which will need to be specifically listed in the documents and/or disclosure schedules.

Purchase Price and Payment

This includes the total amount being paid for the business or assets, the timing and structure of the payments, whether the seller will retain a security interest until payment has been made in full, and whether any further compensation could be owed to the seller based on the performance of the business after closing (i.e., an “earn-out” or similar provision). The concept of working capital is also important here, as the price may require adjustment on the closing date to reflect prorated business expenses and to reflect closing-day valuations if inventory and accounts receivable are being sold.

Closing Date and Deliverables

The summarizes the procedure and timing by which the transaction will close; and the documents, instruments, and tangible property required, such as consent actions, ancillary agreements, security instruments, resignations, third-party consents, financial statements, keys and access codes, assignments of contracts or permits, and any balances due to the seller.

Obligation for Closing Costs and Fees

A statement of how the parties will pay professional fees involved with the sale closing, such as recording fees, broker’s fees, survey costs, franchise transfer fees, and attorney’s fees.

Seller’s Representations and Warranties

Purchase price notwithstanding, this is generally the most important section of a purchase agreement, as it sets forth in writing exactly what the seller is selling and what the buyer is buying.

This vital section contains written certifications made by the seller regarding the business and its past, present, and future operations, such as:

  • The seller has a legal right to authorize the sale;
  • The seller has clear and marketable title to assets being transferred;
  • Financial records presented fairly reflect the financial condition as of the date of the statements; and
  • The seller knows of no obligations or liabilities beyond those disclosed.

Representations and warranties will virtually always reference exhibits or schedules attached to the agreement, where, for example, material contracts, liabilities, litigation, insurance, permits, employee matters, audits, and other important details are listed out and/or described.

Buyer’s Representations and Warranties

While less vital to the transaction than the seller’s representations and warranties, sellers will want assurances that, for example, consummation of the transaction has been duly authorized and will not conflict with any agreement or arrangement to which buyer is subject, no brokers were involved in the transaction, and that the buyer has conducted satisfactory due diligence.

Assumption of Liabilities

These include a list of any liabilities or obligations that are being assumed by the buyer as part of the sale, such as accounts payable, debts or lease agreements, taxes owed, employee benefit obligations, and outstanding litigation; also includes a statement that the buyer assumes no liabilities other than those listed.


These are promises made by one or both parties to take (or refrain from taking) certain actions for a certain period of time. For example, a buyer may want a written commitment that the seller will operate the business in its normal course prior to the closing date; maintain the tangible and intangible assets of the business in a reasonably prudent manner; preserve employee, customer, and vendor relationships; or refrain from committing the business to substantial obligations in the interim period. Sellers, on the other hand, may want assurances that certain employees won’t be terminated after closing, or that protections in place for any outgoing directors or officers of the company will be maintained after closing. Moreover, where a transaction takes place during the middle of the year, the parties will want clarity on obligations such as filing tax returns, renewing permits, making governmental or third-party filings, including the seller’s assistance with certain aspects after closing.

Restrictive Covenants

These are promises (generally made by the seller) to refrain from taking certain actions after closing, most notably starting a business that competes with the recently sold one, or soliciting employees, contractors, customers, or vendors of the business to terminate their relationship with the company.

Employee Matters

The agreement may outline the terms of the continued employment of company employees or their termination, including any obligations related to compensation, severance packages, or benefit plans.


The purchase agreement will likely contain provisions whereby one party is required to compensate the other party for inaccurate representations or warranties, or breaches of the agreement, and mechanisms for doing so. Also, the parties may negotiate a floor (or a cap) with respect to any such claims.

Dispute Resolution

The parties may desire to stipulate how any post-closing disputes will be resolved, the venue of any such actions, and whether alternative dispute resolution mechanisms (e.g., mediation, arbitration) will be required in certain circumstances.

Non-disclosure, Non-solicitation, or Non-competition Agreements

These can include guarantees that the parties will not disclose confidential information or make disparaging statements about the other party; that the seller will not engage in direct competition for a period of time; or that the seller will not encourage employees or consultants of the business to terminate their relationship with the company.

Not all these elements will be included in every purchase agreement. Rather, each is tailored to the specific circumstances of the business being sold and/or to the needs of the parties involved in the transaction, especially in more complex transactions. An attorney well-versed in business transactions can structure a purchase agreement around your best interests and facilitate the transaction in the most efficient manner.

Earn-out Provisions in Purchase Agreement

If the buyer and the seller do not agree on the business’ current worth or future potential, the parties can compromise with an earn-out provision. Earn-out provisions typically state that the seller will receive a certain amount of additional compensation should the company reach certain financial milestones or goals. This is generally expressed as a formula based on specific metrics or methodology negotiated by the parties.

Though designed to help buyers and sellers bridge the gap between differing valuations, earn-out provisions can lead to problems if not clearly and properly structured.

Our transactional attorneys can help craft earn-out provisions to address the unique circumstances of your transaction and to reduce the risk of post-closing disputes.

The Importance of Disclosure Schedules

Disclosure schedules provide supplemental documentation that support each of the representations (assertions of facts) and warranties (promises about the future) made by the buyer or seller in the purchase agreement. They are typically attached to the end of the purchase agreement and incorporated by reference.

Disclosure schedules must be meticulously prepared and accurate. Failure to do so can result in liability exposure, delays in closing, or post-closing litigation. In some cases, erroneous or incomplete disclosure schedules can cause the entire transaction to fall apart.

An experienced transactional attorney can help you decipher requests and organize information so that your disclosure schedules are comprehensive, clear, complete, and offer you the most protection – regardless of whether you are the buyer or the seller.

Learn more about disclosure schedules and how to avoid common mistakes

How to Protect Intellectual Property Before, During, & After a Business Sale

Whether buying or selling a business, you are likely concerned about protecting and preserving vital intellectual property throughout the process. If you are purchasing a business, you will want to take steps to prevent the seller from opening a competing business as soon as the sale goes through, risking the success of your investment. If you are selling a business, you may worry that if the sale falls through, the potential buyer could take and use vital company information, such as trade secrets, to compete unfairly against you and impact the value of your business.

There are several ways to protect intellectual property during a sale:

  • An NDA (non-disclosure agreement) is often included in a business purchase and sale agreement to protect confidential information that may be shared during the due diligence process. This could include sensitive financial information, trade secrets, or other proprietary information that could be valuable to competitors if it were to be leaked. An experienced attorney can help tailor the scope of the agreement to a particular transaction.
  • Non-compete agreements prevent the seller from setting up a competing business post-closing. In Texas, these provisions must be specific regarding the scope of activities, geographical area, and period in which the seller is restricted and designed to protect a legitimate business interest.
  • Non-solicitation agreements bar sellers from encouraging employees, contractors, or consultants to terminate their employment. In Texas, state law treats non-solicitation agreements as non-competes for the purpose of enforcement. As such, non-solicitation clauses must be reasonable in geographic scope, duration of restriction, and extent of prohibited activity; and justified as a means to protect legitimate business interests.

Speak With a Houston Business Purchase Agreement Lawyer Today

Hendershot Cowart P.C. is readily available to assist in the preparation and negotiation of a purchase agreement that protects your interests and facilitates a smooth transaction. Contact our law office today to get started.

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